The letter of intent is a document where two or more parties declare their intention to carry out a negotiation.
This document is the basis for reaching future agreements and is prior to signing a contract. Therefore, the negotiations may not have started or may be in progress, since it is very useful to capture an initial or developing scheme.
Characteristics of the letter of intent
This document can be very much like a short contract. However, if this similarity is high, the provisions it contains can be considered legally binding. This, despite the fact that the parties did not initially conceive it that way. Therefore, the parties can decide which elements that compose it are binding and which are not.
Notwithstanding the foregoing, this letter is not a substitute for a contract, so the parties should ensure that they sign a legally binding agreement. In this sense, these letters can be a formalization of the minutes that are made during the negotiation process.
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Some elements that can be considered when writing a letter of intent are the following:
- Details and nature of the agreement.
- List of the elements made available by each of the parties.
- Obligations set forth for each of the parties.
- Proposed dates in the negotiation process.
- Confidentiality conditions must be established and are binding.
- Logistics for drafting and final version of the legal agreement.
In this sense, these letters can be issued, for example, for contracts of sale and merger of companies. They also cover other areas such as education and the real estate sector.
Objectives of the letter of intent
Letters of intent can be useful for different reasons, some of these are:
- Openly declare the existence of a negotiation.
- Prioritize the most relevant points for the negotiations. In this way, a more organized agenda is created on the elements to be dealt with and those of greater sensitivity.
- Announce the nature of the deal to all involved negotiators.
- Generate a basis for guarantees in case the agreement fails or one of the parties acts in bad faith.
- Make the terms of trade clear.
This instrument is useful for making auditable counts by the parties to a negotiation. However, it can be distorted and delay conversations if you do not allow flexibility. In this case, if the market trends change, there is a risk of ending the negotiations due to the effects of the environment.